Friday, July 11, 2008

today

About Shark Watch

Friday, July 11 - 4:41 PM

Afternoon Comments

It was certainly another wild day for the market as reports about a possible bailout for FNM and FRE triggered some massive selling early in the day which was only exacerbated by Secretary Paulson saying just after the bell that no such plan existed. Although the action was dismal as the day progressed, reports that the Fed would open the discount window to the GSEs served as a catalyst for a vigorous wave of short-covering. However, that quick pop reversed just as soon as it had started.

By the end of the day, the indices lost, on average, just over 1%, and while breadth was 3:2 to the negative, that’s a lot better than earlier in the session. Part of that had to do with the outperformance in the small-caps, but how the Russell 2000 was able to finish with a decent 0.67% in this sort of environment is anyone’s guess.

Meanwhile, earnings season gets under way in earnest next week, and it’s a safe bet that all ears will be on guidance for the rest of the year. The bulls have been pinning their hopes on a strong second half rebound, but the expectations for a speedy recovery have been waning recently. That may help if reports aren’t as bad as feared, but we also need to remember that there are plenty of issues still facing this market. Problems with the financials and high oil prices aren’t simply going to disappear.

The bottom line is that we are in a market that is trending downward. We may be in store for some sort of relief rally, but the tendency has been for any sort of action to the upside to fail quickly. Through all of this, we have continued to hold high levels of cash.